ACCT 444 Week 3 Homework
Copy and Pate below link into your Browser to buy tutorial
ACCT 444 Week 3 Homework
Chapter 7
7-27 (Objective 7-4) The following are examples of documentation
typically obtained by auditors:
1. Vendors’
invoices
2. General
ledger files
3. Bank
statements
4. Cancelled
payroll checks
5. Payroll
time records
6. Purchase
requisitions
7. Receiving
reports (documents prepared when merchandise is received)
8. Minutes
of the board of directors
9. Remittance
advices
10. Signed
W-4s (Employee’s Withholding Exemption Certificates)
11. Signed
lease agreements
12. Duplicate
copies of bills of lading
13. Subsidiary
accounts receivable records
14. Cancelled
notes payable
15. Duplicate
sales invoices
16. Articles
of incorporation
17. Title
insurance policies for real estate
18. Notes
receivable
Required
1.
Classify each of the preceding
items according to type of documentation: (1) internal or (2) external.
1. Explain
why external evidence is more reliable than internal evidence.
.
7-30 (Objective 7-4) Eight different types of evidence were
discussed. The following questions concern the reliability of that evidence:
Required
1.
Explain why confirmations are
normally more reliable evidence than inquiries of the client.
.
1. Describe
a situation in which confirmation will be considered highly reliable and
another in which it will not be reliable.
.
1. Under
what circumstances is the physical observation of inventory considered relatively
unreliable evidence?
.
1.
Explain why recalculation tests
are highly reliable but of relatively limited use.
.
1. Give
three examples of relatively reliable documentation and three examples of less
reliable documentation. What characteristics distinguish the two?
1. Give
several examples in which the qualifications of the respondent or the
qualifications of the auditor affect the reliability of the evidence.
1.
Explain why analytical
procedures are important evidence even though they are relatively unreliable by
themselves.
.
7-31 (Objective 7-4) As auditor of the Star Manufacturing
Company, you have obtained
1.
A trial balance taken from the books of Star one month before
year-end:
2.
There are no inventories consigned either in or out.
3.
All notes receivable are due from outsiders and held by Star.
Required
Which accounts should be
confirmed with outside sources? Briefly describe from whom they should be
confirmed and the information that should be confirmed. Organize your answer in
the following format:*
Chapter 8
8-22
(Objective 8-7) Gale Gordon, CPA, has found ratio and trend analysis relatively
useless as a tool in conducting audits. For several engagements, he computed
the industry ratios included in publications by Standard and Poor’s and
compared them with industry standards. For most engagements, the client’s
business was significantly different from the industry data in the publication
and the client automatically explained away any discrepancies by attributing
them to the unique nature of its operations. In cases in which the client had
more than one branch in different industries, Gordon found the ratio analysis
no help at all. How can Gordon improve the quality of his analytical
procedures?
8-33 (Objectives 8-3, 8-7, 8-8) Your comparison of the gross margin percent
for Jones Drugs for the years 2008 through 2011 indicates a significant
decline. This is shown by the following information:
A
discussion with Marilyn Adams, the controller, brings to light two possible
explanations. She informs you that the industry gross profit percent in the
retail drug industry declined fairly steadily for 3 years, which accounts for
part of the decline. A second factor was the declining percent of the total
volume resulting from the pharmacy part of the business. The pharmacy sales
represent the most profitable portion of the business, yet the competition from
discount drugstores prevents it from expanding as fast as the nondrug items
such as magazines, candy, and many other items sold. Adams feels strongly that
these two factors are the cause of the decline.
The
following additional information is obtained from independent sources and the
client’s records as a means of investigating the controller’s explanations:
Required
1.
Evaluate the explanation
provided by Adams. Show calculations to support your conclusions.
.
1.
Which specific aspects of the
client’s financial statements require intensive investigation in this audit?
.
Chapter 9
9-33 (Objectives 9-6) Below are ten independent risk factors:
1.
The client lacks sufficient working capital to continue
operations.
2.
The client fails to detect employee theft of inventory from the
warehouse because there are no restrictions on warehouse access and the client
does not reconcile inventory on hand to recorded amounts on a timely basis.
3.
The company is publicly traded.
4.
The auditor has identified numerous material misstatements
during prior year audit engagements.
5.
The assigned staff on the audit engagement lack the necessary
skills to identify actual errors in an account balance when examining audit
evidence accumulated.
6.
The client is one of the industry’s largest based on its size
and market share.
7.
The client engages in several material transactions with
entities owned by family members of several of the client’s senior executives.
8.
The allowance for doubtful accounts is based on significant
assumptions made by management.
9.
The audit plan omits several necessary audit procedures.
10. The
client fails to reconcile bank accounts to recorded cash balances.
Required
Identify which of the following
audit risk model components relates most directly to each of the ten risk
factors:
·
Acceptable audit risk
·
Inherent risk
·
Control risk
·
Planned detection risk
No comments:
Post a Comment